Much has been written in recent years about calculating the benefit in kind for private use of a residence provided by a company. Especially since the benefit in kind for private use of a residence was almost doubled in 2012.
1. Flat-rate determination of the benefit in kind
Since 2012, in accordance with Article 18(2)(2) of the Royal Decree implementing the Income Tax Code (KB/WIB), the benefit has been calculated at a flat rate using the following formula:
Index-adjusted cadastral income x 100/60 x 1.25 or 3.8.
The coefficient of 1.25 may only be applied in the case of non-index-adjusted cadastral incomes of €745 or less; the coefficient of 3.8 must be applied in all other cases.
Before 2012 the coefficient for cadastral incomes of more than €745 was only 2, instead of 3.8.
2. Flat-rate benefit vs market rent
When this formula was introduced, the question arose of whether the obligation to calculate the benefit according to a flat rate also applied in circumstances where a market rent was paid by the manager/employee for the private use. The Minister of Finance confirmed that it did, and stated that people in such a situation would still be taxed on the difference between the flat-rate benefit and the market rent, if the flat rate was higher than the rent.
This position has come under heavy criticism in the legal literature. If the rent is set in accordance with prevailing prices in the property market, there can be no question of a benefit being acquired by the manager/employee. Moreover, Article 18 of the KB/WIB refers to the aforementioned calculation only in the case of the “provision of real property or parts of real property free of charge.” If rent is paid, and certainly if it’s market rent, we can only endorse this view, and confirm that in fact there can be no question of a benefit being acquired.
3. Is a flat-rate benefit for a residence provided by a company unconstitutional?
Another point of discussion about the benefit in kind relates to the difference between calculating the benefit for a residence provided by a company and one provided by a natural or self-employed person. The benefit of the private use of a residence provided by a natural person certainly does not consist of increasing the amount by a coefficient of 1.25 or 3.8.
This discussion was recently “resolved” by the Ghent Court of Appeal. Under the Constitution, all taxpayers who are in the same situation should be treated in the same manner, and should thus also be taxed in the same manner. Different treatment is acceptable only where it is objectively and reasonably justifiable in light of the purpose of the tax, and without going beyond what is necessary to achieve that purpose. The Court of Appeal held that nowhere in the legislative texts, royal decrees or preparatory documents could be found an objective and reasonable justification for the different treatment. According to the Court, the tax authorities had also not succeeded in justifying the unequal treatment. As a result, the Court of Appeal decided that such a difference in taxation is unconstitutional.
What the impact of this decision will be in practice is not yet clear. In the first instance, we’re waiting for a reaction from the legislature before the decision has any chance of being successfully applied in practice. We think it more than likely that the tax authorities will ignore the decision for now and revert to the KB/WIB, meaning that the formula for calculating the benefit in kind, although disputed, will continue to be applied. The government may appeal the decision to the Court of Cassation or take legislative action to change the way the benefit is calculated. There is nothing to prevent a taxpayer from using a notice of objection to attempt to challenge the calculation of an excessively high benefit in kind, but it should be borne in mind that the debate will most likely end up being conducted in court.
We hope the government will take the necessary steps to bring the flat-rate calculation of the benefit in kind for private use of a residence back down to earth.
We’ll keep monitoring the situation and let you know when there are further developments.